The term VoIP stands for voice over Internet Protocol. VoIP is related to the terms IP telephony and Internet telephony, which you'll be hearing more and more about during the next several years. VoIP has had a lot of buzz and hype behind it, though recently it has lost a little of its steam.

At the most basic level, VoIP technologies enable analog telephone communications to be digitally transferred and routed over data networks-whether it's a wide area network (WAN), a local area network (LAN) or the Internet. In theory, the two packets of communications-digitized voice and data-coexist peacefully and move all over a network. Of course, a third packet-video-has become a major network consideration for 21st-century organizations because it's a bandwidth hog. When combined on one network, data, voice and video offer boundless productivity opportunities for users, and potential telecom savings and efficiencies for organizations, but major headaches for IT networking staffers who have to "keep the peace" between the three demanding sets of network traffic. For their part, CIOs, burdened for so many years with legacy telecom and networking infrastructures, will have to spend a tremendous amount of resources on improving their network capability, reliability and flexibility to keep pace.

Right now, there are three distinct ways that consumers and businesses are using VoIP technology. The first is by using a regular phone, some type of fast Internet connection and, for the consumer, an analog telephone adapter, or ATA. The ATA converts voice signals into a digital packet of data and sends it over the Internet. It's not too difficult to set up and use, and it is common in the consumer VoIP space. For businesses with many users on traditional phones, the ATA becomes a specialized server that can convert the analog voice signals into packetized data. For example, when an employee in a New York office calls a colleague in the Chicago office, the call is routed through a traditional PBX (or private branch exchange, which is the system that directs all the traffic) within the company's physical location, to the organization's in-house IP-based network, then converted to IP packets and sent via the Internet or the organization's WAN.

A second way is by using a specialized VoIP or IP telephone, which resembles a standard landline telephone but connects to a router using an Ethernet cable. A specialized IP voice server in an organization's back office is able to route the calls over the network-from one VoIP-enabled phone to another. This option is becoming more popular, and vendors that specialize in managing this functionality, especially for small and midsize companies who rely on a broadband or DSL connection, have seen steady growth.

The third way is by installing software on your laptop, which acts as a "mobile telephone." All that's needed is a fast Internet connection, what's called a "soft phone" or a speaker, microphone and sound card, to make and receive the calls that would normally go to an office number-right from a PC. That's an innovative concept and ability for mobile knowledge workers, but in reality, it has yet to take off.

The traditional telephone experience, with the good old dial tone, is based on circuit switching. You pick up the phone, you get a dial tone, you dial the phone number, the other person hears a ring and picks up the phone, and a circuit connection, enabled over the carrier's network, is made on both ends. Then you talk. The decades-old system behind this form of communication is called the Public Switched Telephone Network (PSTN).

With VoIP and IP telephony, circuit switching is replaced with packet switching, and the "public" system enabling the transfer of the packets and the communication is the Internet. Because the dial tone has become so pervasive and dependable, VoIP systems have their work cut out for them. For example, if there's a power outage, you can't make VoIP calls unless you have a backup generator-one reason why many companies that have deployed VoIP systems still have analog lines for emergencies. Another difference is that the quality of your VoIP call largely depends on the quality of the network and speed of the Internet connection on which you are sending your digitized voice signals.

In terms of appearance, there's little difference between a 21st-century phone found in any businessperson's office today versus a VoIP phone. The main technical dissimilarity between the two is that a VoIP phone has an Ethernet port, and a standard telephone does not. According to In-Stat predictions, total IP phone shipments will grow from 10 million units in 2006 to 164 million units in 2010.

Many organizations found that they can shave a lot of money off their monthly telecom expenses, for several reasons. The first, and probably the most talked about, is that with a VoIP system, organizations can save money on long-distance calls and those made on a WAN between intra-office staffers who work in dispersed locations.

The second reason is that organizations can reap savings by having data and voice traffic on one network, rather than having to manage and pay for separate data and voice lines. This makes network management, and telephony system updates and upgrades easier. With a centrally controlled IP telephony system, any changes network administrators have to make to the telephone system, such as adding a new employee, or when an employee moves seats, is much easier-there's no back-office wiring closet to visit or complex reprogramming of phones. Changes are made through a simple Web-based application.

Another purported benefit is new and more responsive forms of customer service. For example, "click to talk" (or "click to connect") has become a popular option for online retailers with hefty customer service operations. With click to talk, online customers who want to speak with a live customer service representative can click on a hyperlink and be connected (via VoIP) with the most appropriate rep for some human-to-human contact. For more on the advantages of VoIP, read "Is It Time To Connect VoIP Into Your IT/Business Strategy?"

All of these potential savings are critical for 21st-century organizations. That's because total telecom expenses, which in many companies are now IT's problem, are huge. According to Aberdeen Group, the average Fortune 500 company spends $116 million each year on telecom services (for mid-market enterprises, it's $26 million), and telecom costs, as a whole, have jumped into the top three line items for most companies. With VoIP implementations, many CIOs claim monthly savings of anywhere from $1,000 to more than a million dollars in the largest of enterprises that have heavy-duty call center operations or lots of geographically separated divisions that need to communicate via long-distance phone calls.

Just as the list of potential advantages might make you think, "Why aren't we doing this?" there is an equal number of disadvantages and potential pitfalls that could make you (and your CEO and CFO) wonder, "Why are we doing this?" That will most likely happen when users experience network delays and poor-quality voice communications.

The first, and possibly most crucial potential disadvantage of a VoIP rollout is the fact that voice's network requirements are so finicky that any degradation in network quality will immediately and adversely affect your communications experience. The unfortunate consequence for those on VoIP-enabled calls is what is referred to as latency, jitter and packet loss, and the resultant "garble" or dropped calls are quite annoying.

That critical flaw for VoIP is in stark contrast to how data moves around on a network, where hiccups can occur with few short-term consequences. Put another way, in a Weigh In column on CIO.com, the authors write, "VoIP is a real-time application that needs to be treated as such-it does not have the same kinds of requirements as other enterprise applications that IT departments are used to managing." A robust, high-quality network environment is paramount for VoIP to work well. For many CIOs, that will be an expensive and time-consuming upgrade.

Second, some of those much-heralded big savings on long-distance calls will be realized only when a company's VoIP phones are connected on their network-in effect closing the loop on a network, and taking the carriers out of the equation. (If a carrier is still involved in your VoIP deployment at any point in time, expect that you'll still have to pay it something.)

Third, because VoIP is so hot, scores of vendors are flooding the market and promising short implementations (a month or two!) and relatively reasonable implementation costs (less than $150,000). Beware: Many CIOs and analysts have reported that VoIP rollouts will most likely take longer than anticipated, cost more than originally planned and require lots of training for users.

And lastly, VoIP depends on electricity to make it work. This means that power outages and VoIP don't mix well-no power, no VoIP service.

The IP telephony market is poised for a lot of growth. Unfortunately, it's been stagnant that way for the last couple of years now.

There are many predictable issues that need to be ironed out before VoIP does, indeed, take off. The most critical one is all about perception: With VoIP, there still seems to be a steady undercurrent of skepticism-especially from businesses-that IP telephony does work well and that the quality is equal to what's offered from traditional carrier services. VoIP vendors have to get CIOs to buy into VoIP as a reliable, cost-effective and secure alternative, and dispel the FUD (fear, uncertainty, doubt) factor.

"Enterprises are being barraged by conflicting messages about the cost-effectiveness of adopting VoIP. These unclear messages surrounding sizable capital expenditures have made enterprises hesitant to deploy VoIP on a wide scale," according to market research firm Current Analysis.

Current Analysis predicts that the following near- and long-term market drivers will have a crucial effect on VoIP's adoption in enterprises:

Evolving standards: Session Initiation Protocol will continue to be developed by standards bodies, heavily marketed by companies supporting them and integrated into vendors' VoIP equipment as it displaces the H.323 standard. For mass appeal, support for as many protocols as possible remains necessary.

New applications: Enterprises are beginning to deploy (or plan the deployment of) a new breed of communications applications that takes advantage of packet-based communications. These include multimedia conferencing, video, presence management, IP-enabled call centers, and e-commerce applications such as "click to talk" customer assistance.

Reliability and security: Potential enterprise customers regularly voice concern for packet telephony's low levels of reliability and security when compared with traditional voice networking. Providing solutions that maximize the reliability of VoIP gateways is central to calming these anxieties. As such, improvements in both security and survivability have been the primary focus for many vendors.

The other significant factor for the VoIP market is how much more the carriers will enable VoIP services of their own. Carriers (AT&T, Verizon, Qwest, etc.) are making inroads into the market by offering hosted and managed VoIP services, especially to small and midsize businesses. "These new services offer enterprises a migration path from TDM to IP that enables them to maintain a hybrid environment for as long as necessary, provides operational expense savings, new features and flexible call management options," according to Current Analysis research.

You've probably heard about Skype and Vonage. These two companies provide VoIP services for consumers, and they are now targeting the business market (small and midsize first) as well. With Skype software, there are many ways to make free calls, such as Skype user to Skype user calls, but there are charges for other types of calls. Vonage offers variously priced calling plans that allow you to make free calls. In both cases, check the companies' websites for more detailed information because not every call you make using their services will actually be free.

Security issues surrounding VoIP have been simmering in the background for years as the technical hurdles have drawn much of the spotlight. However, vendors and enterprises have recently started addressing the problems. In 2005, a story on CIO.com looked at the risks and challenges. In that article the writer said "...IP voice servers are susceptible to virus attacks and hackers. VoIP is even more sensitive than data when it comes to disruption and packet loss. Yet many security measures that are applied to data networks don't work well for VoIP. For example, traditional firewalls can result in delays or blocked calls, and encryption can cause 'latency' and 'jitter' (packet slowdowns that can disrupt calls). As a result, security techniques must be specialized for VoIP. And it should go without saying that VoIP equipment should be placed in a secure, locked location." The article also addressed the fact that unencrypted VoIP calls are easy to intercept using software downloaded from the Internet.

Clearly, there's a lot of work to be done. In recognition of the fact that security issues have become a huge concern, for the first time VoIP has been added to the list of top 20 threats on the most recent SANS Institute security update. Market researcher In-Stat reported in its November 2006 article "VoIP Security: Preparing for the Evolving Threat" that "with businesses poised to rapidly adopt IP PBXs and IP phones, companies need to revamp their security strategies to accommodate VoIP." An In-Stat survey found that although more than 40 percent of the respondents did not have specific plans for securing VoIP deployments, the majority did have budgets in place to do so, and when asked to rate their knowledge of VoIP security, most characterized themselves as "somewhat knowledgeable," the lowest rating provided on the survey.

The rise of VoIP comes at an interesting and challenging time for CIOs. As CIO reported in "Untangling Telecom," during the last decade or so, the IT department and telecom staffers have "entered into a sort of arranged marriage," and it's been a sometimes rocky union. That arrangement took place because CIOs' IT departments have always run data networks, and telecom carriers have been increasingly providing network-based services (for WANs and LANs). Additionally, voice and video can now run over networks, all of which led to telecom being rolled under IT's purview.

The convergence of networking (data, voice and video), as well as unstoppable demand for bandwidth from users, has put a tremendous amount of pressure on CIOs to come up with a unified strategy that takes advantage of these newer technologies that should enable greater productivity for users, and ultimately save the company money. For CIOs, it's a balance right now-piloting VoIP in controlled, small-scale environments while keeping the traditional, circuit-switched phone lines until companies are confident that they aren't necessary. However, nobody is sure when that will occur.

In general, CIOs are taking a phased, cautious approach to rolling out VoIP across the enterprise. That's largely because of the technical hurdles discussed earlier and also the fact that many CIOs are still skeptical that VoIP and IP telephony can be "the solution" to all of their telecom woes. There are places where a VoIP pilot makes perfect sense, and those where it doesn't. For example, if you're a retail manufacturer who has a large amount of seasonal sales, you don't want to go live with a wide-scale VoIP rollout in your call centers around Christmas. But in areas where VoIP's kinks can be worked out, and the work can still get done (meaning delays in phone calls and intermittent service won't kill the company), VoIP makes a lot of sense. Osterman Research claims that just one in 10 U.S. companies has already deployed VoIP, though it predicts that by late 2007, 45 percent of companies will have deployed some type of VoIP.

Problems and challenges lie around every corner when it comes to VoIP implementations. Here are three things to remember, courtesy of "Don't Let VoIP Throw You," in the Nov. 15 issue of CIO.

Organizational mess

VoIP works across wide area and local area networks, which many companies handle through different budgets and departments when IT and telecom groups are separate.

TIP: Companies may have to reorganize internally before developing a companywide VoIP strategy.

Network traffic trouble

It's not unusual for performance problems to creep in as you add VoIP users or sites. "The most important decision anyone who is considering implementing VoIP can make is how they will 'live' with it after the installation is completed," says Forrester Research analyst Lisa Pierce.

TIP: Make sure you have comprehensive VoIP monitoring and management tools, and staff expertise before rollout. If you can't afford these, consider managed or hosted services, Pierce advises.

Tough business case

Moving to VoIP typically means network upgrades. But VoIP may not be top on the list of networking upgrades, especially with telecom budgets growing more slowly than IT budgets. Meanwhile, conventional long-distance rates are plummeting; undercutting what has been VoIP's biggest advantage.

TIP: Piggybacking on a network redesign may help. Keep a close eye on the VoIP dollars and sense as phone rates change.

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